#THE USURIOUS LOANS ACT, 1918 

**(Modified as on 3rd December 2018)**
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##ARRANGEMENT OF SECTIONS 
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SECTIONS 

1. Short title and extent. 
2. Definitions. 
3. Re-opening of transactions. 
4. Insolvency proceedings. 



#THE USURIOUS LOANS ACT, 1918 

##ACT NO. 10 OF 1918
[^1]

[22nd March, 1918.] 

An Act to give additional powers to Courts to deal in certain cases with usurious loans of money 
  or in kind. 

  WHEREAS it is expedient to give additional powers to Courts to deal in certain cases with usurious 
loans of money or in kind; It is hereby enacted as follows:— 

1. **Short title and extent.**—(1) This Act may be called Usurious Loans Act, 1918. 

(2) It extends to the whole of India except 2 the  territories  which,  immediately  before  the  1st 
November, 1956, were comprised in Part B States. 

(3) The State Government may, by notification in the Official Gazette, direct that it shall not apply to 
any area, class of persons, or class of transactions which it may specify in its notification. 

2. **Definitions.**—In this Act, unless there is anything repugnant in the subject or context,— 

(1) “Interest” means rate of interest and includes the return to be made over and above what was 
actually lent, whether the same is charged or sought to be recovered specifically by way of interest or 
otherwise. 

(2) “Loan” means a loan whether of money or in kind and includes any transaction which is, in 
the opinion of the Court, in substance a loan. 

(3) “Suit to which this Act applies” means any suit— 

  (a) for the recovery of a loan made after the commencement of this Act; or 

  (b) for the enforcement of any security taken or any agreement, whether by way of settlement 
of account or otherwise, made, after the commencement of this Act, in respect of any loan made 
either before or after the commencement of this Act; or 

  (c) for the redemption of any security given after the commencement of this Act in respect of 
any loan made either before or after the commencement of this Act.

3. Re-opening of transactions.—(1) Notwithstanding anything in the Usury Laws Repeal Act, 1855 
(28 of 1855), where, in any suit to which this Act applies, whether heard ex parte or otherwise, the Court 
has reason to believe, — 

  (a) that the interest is excessive; and 

  (b)  that  the  transaction  was,  as  between  the  parties  thereto,  substantially  unfair,  the  Court  may 
exercise all or any of the following powers, namely, may,—  

     (i) re-open the transaction, take an account between the parties, and relieve the debtor of all 
liability in respect of any excessive interest; 

     (ii) notwithstanding any agreement, purporting to close previous dealings and to create a new 
obligation, re-open any account already taken between them and relieve the debtor of all liability 
in respect of any excessive interest, and if anything has been paid or allowed in account in respect 
of such liability, order the creditor to repay any sum which it considers to be repayable in respect 
thereof; 

     (iii) set aside either wholly or in part or revise or alter any security given or agreement made 
in respect of any loan, and if the creditor has parted with the security, order him to indemnify the 
debtor in such manner and to such extent as it may deem just: 

Provided that, in the exercise of these powers, the Court shall not— 

       (i) re-open  any  agreement  purporting  to  close  previous  dealings  and  to  create  a  new 
obligation which has been entered into by the parties or any persons from whom they claim at 
a date more than twelve years from the date of the transaction; 

       (ii) do anything which affects any decree of a Court. 

*Explanation.*—In the case of a suit brought on a series of transactions the expression “the transaction” 
means, for the purposes of proviso (i), the first of such transactions. 

(2) (a) In this section  “excessive” means in excess of that which the Court deems to be reasonable 
having regard to the risk incurred as it appeared, or must be taken to have appeared, to the creditor at the 
date of the loan. 

  (b) In considering whether interest is excessive under this section, the Court shall take into account 
any  amounts  charged  or  paid,  whether  in  money  or  in  kind,  for  expenses,  inquiries,  fines,  bonuses, 
premia,  renewals  or  any  other  charges,  and  if  compound  interest  is  charged,  the  periods  at  which  it  is 
calculated,  and  the  total  advantage  which  may  reasonably  be  taken  to  have  been  expected  from  the 
transaction. 

  (c) In considering the question of risk, the Court shall take into account the presence or absence of 
security  and  the  value  thereof,  the  financial  condition  of  the  debtor  and  the  result  of  any  previous 
transactions of the debtor, by way of loan, so far as the same were known, or must be taken to have been 
known, to the creditor. 

  (d) In considering whether a transaction was substantially unfair, the Court shall take into account all 
circumstances materially affecting the relations of the parties at the time of the loan or tending to show 
that the transaction was unfair, including the necessities or supposed necessities of the debtor at the time 
of the loan so far as the same were known, or must be taken to have been known, to the creditor. 

*Explanation.*—Interest  may  of  itself  be  sufficient  evidence  that  the  transaction  was  substantially 
unfair. 

(3) This section shall apply to any suit, whatever its form may be, if such suit is substantially one for 
the recovery of a loan or for the enforcement of any agreement or security in respect of a loan or for the 
redemption of any such security. 

(4) Nothing in this section shall affect the rights of any transferee for value who satisfies the Court 
that the transfer to him was bona fide, and that he had at the time of such transfer no notice of any fact 
which would have entitled the debtor as against the lender to relief under this section. For the purposes of 
this  sub-section,  the  word  “notice”  shall have  the same  meaning  as  is  ascribed  to  it  in section  4  of the 
Transfer of Property Act, 1882 (4 of 1882). 

(5) Nothing in this section shall be construed as derogating from the existing powers or jurisdiction of 
any Court. 

4. **Insolvency proceedings.**—On any application relating to the admission or amount of a proof of a 
loan in any insolvency proceedings, the Court may exercise the like powers as may be exercised under 
section 3 by a Court in a suit to which this Act applies.




[^1]. It has been amended in the U.P. by U.P. Act 23 of 1934 and by Act 29 of 1976 in the C.P. by C.P. Act 11 of 1934, in Madras 
by Mad. Act 8 of 1937, in East Punjab by E.P. Act 4 of 1948, in Andhra Pradesh by A.P. Act 24 of 1961, and in Himachal 
Pradesh by H.P. Act 3 of 1970. 
The  Act  has  been  extended  to  the  whole  of  Madhya  Pradesh  by  N1.P.  Act  23  of  1958  (when  notified)  and  to  the  Union 
territory of Pondicherry by Act 26 of 1968, s. 3 and Sch. 

  The Act has been repealed in its application to Bellary District by Mysore Act 14 of 1955. 